R&D Credit

The Research and Development Tax Credit is a government-sponsored
benefit that provides cash incentives for companies conducting R&D in the
U.S. It is a credit, which is a
dollar-for-dollar credit against taxes owed or paid. As a result, a company
must have had past net income or plan to have net income in the future to gain
benefit from the credit. Any company that designs, develops, or improves products,
processes, techniques, formulas, inventions, or software may be eligible. Even
if a company has simply invested time, money and resources toward the
advancement or improvement of their products and processes, they may also
qualify.

For example, if a company is involved in any of the following
activities, they may be able to claim the R&D tax credit:

Engineering
activity to advance the product’s design to the point of manufacture

Systems
processing modeling

System and
functional requirements analysis

Integration
analysis

Experimenting
with new technologies

Experimenting
with new material and integrating the material to improve manufactured products

Engineering to
evaluate new or improved specification/modifications in terms of performance,
reliability, quality, and durability

Developing new
production processes during prototyping and preproduction phases

Research aimed to
significantly cut a product’s time-to-market

Research aimed to
obtain more efficient designs

Developing and
modifying research methods / formulations / products

Paying outside
consultants / contractors to do any of the above activities

The credit rules allows companies to go back for all open tax years (usually three years) and amend returns for any credits applicable to those years that were never claimed. The credits can generally be carried forward 20 years.

An R&D study must generally be
performed to determine and document a company’s activities that qualify. From
this information, the credit(s) can be calculated.

A first step to get started involves
performing an analysis to determine the cost vs. benefit to the company of
determining the R&D credit. In other words, will there be enough benefits
in credits from the company’s activities and will they be usable, that will
outweigh any costs for an R&D study and amending the prior tax returns,
etc. This may at first seem arduous, but the process generally may yield
significant benefit to the company.

If it sounds like your company may have
these activities, we would love to help. We can move forward in discussing what
we can do for you! Get in touch.

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